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Solved by a verified expert :Ken (birthdate July 1, 1986) and Amy (birthdate July 4, 1988) Booth have brought you the following information regarding their income, expenses, and withholding for the year. They are unsure which of these items must be used to calculate taxable income.
Ken’s salary (salesman) $28,345
Amy’s wages (part-time nurse) 17,490
Insurance reimbursement for repairs from an auto accident 500
Gift from Uncle George 2,000
Interest income from Lodge State Bank 833
Federal income taxes withheld:
From Ken’s salary 2,600
From Amy’s wages 650
Amy owns and operates a computer bookstore named “The Disk Drive”. The store is located at 2000 Broadway Street, Menomonie, WI 54751. During 2017, Amy had the following income and expenses:
Sales of books $320,985
Store rental 15,985
Office expense 6,150
Advertising 11,700
City business license 1,020
Payroll 83,550
Payroll taxes 8,392
Utilities 8,050
Other 3,000
January 1 250,000
December 31 231,645
Purchases during the year 166,500
The previous year was Amy’s first year of operating the bookstore. Amy and Ken elected to carry forward a $2,175 net operating loss from the first year of business into 2017. (Note: Net operating losses are reported on the “Other Income” line of Form 1040.)
This year, Amy loaned a friend $10,000 so that he could make an investment. Instead of making the investment, the friend lost all the money gambling and left for parts unknown. Amy has no hope of ever collecting on this bad debt.
Ken, who ordinarily never gambles, won $22,000 at a casino birthday party for one of his friends. This amount should be reported on the “Other Income” line of Form 1040.
The Booths provide the sole support for Ken’s parents, Rod (Social Security number 124-80-9050) and Mary (Social Security number 489-37-6676) Booth, who live in their own home. Ken and Amy live at 2345 Wilson Avenue, Menomonie, WI, 54751, and their Social Security numbers are 343-75-3456 (Ken) and 123-45-7890 (Amy).
Complete the Booth’s Form 1040 and the related schedules and forms provided. A statement is required to be attached to a return for a nonbusiness bad debt, but this requirement may be ignored for this problem. You may ignore any related self-employment taxes. Assume no 1099-B is filed in association with the bad debt when filling out Form 8949.
You may need to complete the other forms before completing the Form 1040.
If an amount box does not require an entry or the answer is zero, enter “0”.
If required, round amounts to the nearest dollar.
Enter all amounts as positive numbers. However, if required, use the minus sign to enter a “loss”.